A COMPARISON STUDY OF FRAUD DETECTION IN

USAGE OF CREDIT CARDS USING MACHINE

LEARNING
 ABSTRACT
• Credit card fraud is a growing concern in online transactions due to its dynamic and evolving
patterns, making traditional detection systems ineffective.

• This research proposes a cutting-edge fraud detection solution by integrating machine learning
(ML) techniques.

• Algorithms like XGBoost, Support Vector Machine (SVM), Decision Tree, Random Forest, and
Logistic Regression are employed alongside a Convolutional Neural Network (CNN) to enhance
detection accuracy.

• The study evaluates performance using metrics such as F1-score, accuracy, precision, recall, and
Area Under the Curve (AUC), achieving exceptional results (e.g., 99.9% AUC, 93% recall).

• By combining ML and DL, this research offers a scalable, efficient, and remote fraud detection
system, addressing the limitations of traditional methods and providing a reliable solution for
financial institutions.
 PROPOSED SYSTEM
• The proposed system integrates machine learning (ML) and deep learning (DL) techniques to
create a robust credit card fraud detection solution.

• It employs ML algorithms such as XGBoost, SVM for baseline fraud detection, combined with a
Convolutional Neural Network (CNN) to enhance accuracy.

• The CNN's layered architecture extracts complex patterns from transaction data, improving
detection efficiency.

• Key performance metrics, including F1-score, accuracy, precision, recall, and ROC-AUC, are used
for evaluation, achieving exceptional results (e.g., 99.9% AUC, 93% recall)

• By leveraging the strengths of both ML and DL, the system provides a scalable, efficient, and
remote fraud detection solution, capable of adapting to evolving fraud patterns and ensuring secure
online transactions..
 EXISTING SYSTEM
• Traditional credit card fraud detection systems rely heavily on rule-based approaches and basic
machine learning algorithms.

• These systems use predefined rules and thresholds to flag suspicious transactions, often resulting
in high false positive and false negative rates.

• Machine learning models like Logistic Regression, Decision Trees, and Random Forests are
commonly employed but struggle with imbalanced datasets and evolving fraud patterns.

• The absence of advanced techniques, such as deep learning, limits their ability to process large-
scale data and detect sophisticated fraud.

• These limitations highlight the need for more advanced, hybrid approaches to improve fraud
detection capabilities.
 SYSTEM CONFIGURATION

HARDWARE REQUIREMENT:-

PROCESS :INTEL® CORE™ I9-14900K 3.20 GHZ

RAM :16 GB
HARD DISK :1 TB

SOFTWARE REQUIREMENT:-

Frontend :HTML,CSS
Backend : Python
Framework : Flask
 DOMAIN INTRODUCTION

• With the rapid growth of digital transactions, credit card fraud has become a critical challenge for
financial institutions. Fraudulent activities, such as unauthorized transactions, identity theft, and account
takeovers, lead to substantial financial losses and damage consumer trust.

• Traditional rule-based fraud detection methods struggle to adapt to evolving fraud patterns, as
cybercriminals continuously develop new techniques to bypass security measures.

• To combat this, machine learning (ML) and deep learning (DL) have emerged as powerful tools for
detecting fraudulent transactions in real-time. These techniques analyze transaction data, identify
anomalies, and classify transactions as legitimate or fraudulent with high accuracy.
Data flow Diagram
Level 0
Level 1
Level 2
ER Diagram
Use Case Diagram
Activity Diagram
Class Diagram
 MODULES
 Transaction Processing Module

 Fraud Detection Module

 Alert & Notification Module

 Reporting & Analytics Module

 Machine Learning Model Management Module

 Database & Logging Module

 Bank & Financial Institution Integration Module

 1. Transaction Processing Module

. 🔹 Purpose: Handles all credit card transactions securely and efficiently.

🔹 Key Features:

• Validates transaction details (amount, location, merchant).

• Logs transactions for fraud analysis.

• Real-time transaction status updates (Approved/Declined/Under Review).

• Works with external banking systems for transaction approvals.

2. Fraud Detection Module

🔹 Purpose: Uses Machine Learning (ML) and Deep Learning (DL) to detect fraudulent transactions.
🔹 Key Features:

• Data Preprocessing (cleansing, normalization, feature extraction).

• Applies ML algorithms (XGBoost, SVM, Decision Tree, Random Forest).

• Uses CNN (Deep Learning) for pattern recognition.

• Computes Risk Score to classify transactions as Fraudulent or Legitimate.

• Self-learning system that improves with new fraud patterns.

 3. Alert & Notification Module
.
🔹 Purpose: Sends real-time alerts to users and financial institutions in case of suspicious activity.

• Automated fraud alerts via Email, SMS, Push Notifications.

• Immediate notification to banks when fraud is detected.

• Allows users to confirm or dispute flagged transactions.

• Generates fraud summary reports for financial institutions.

4. Reporting & Analytics Module

🔹 Purpose: Provides insights into fraud trends and transaction behaviors.

• Interactive dashboards for fraud trends and user behavior.

• Real-time fraud analytics with historical data comparisons.

• Generates detailed fraud detection reports for financial authorities.

• Customizable filters and visualizations for deep analysis.

5. Machine Learning Model Management Module
,

🔹 Purpose: Trains, updates, and manages ML models used for fraud detection.

• Retrains models periodically to adapt to new fraud patterns.

• Stores multiple ML models (XGBoost, CNN, etc.).

• Tracks model performance (Accuracy, Precision, Recall, AUC).

• Allows system admins to deploy the best-performing model.

6. Database & Logging Module

🔹 Purpose: Stores transactions, fraud cases, and logs system activities securely.

• Secure transaction data storage with encryption.

• Logs every transaction and fraud detection process.

• Maintains an audit trail for regulatory compliance.

• Optimized for fast data retrieval during investigations.

7.
,
Bank & Financial Institution Integration Module

🔹 Purpose: Connects with banks and financial institutions to report fraud cases.
🔹 Key Features:

• Secure API integration with banking systems.

• Automated fraud case reporting to banks.

• Allows banks to review and act on flagged transactions.

• Supports collaborative fraud prevention efforts.

 TABLE DESIGN

1. User Table
Column Name Data Type Constraints Description
PRIMARY KEY,
Unique ID for each
userID INT AUTO_INCREME
user
NT
Full name of the
name VARCHAR(100) NOT NULL
user
UNIQUE, NOT User's email
email VARCHAR(150)
NULL address
UNIQUE, NOT Contact number of
phone VARCHAR(15)
NULL the user
address TEXT NULL User's address
2. TRANSACTION TABLE
Column Name Data Type Constraints Description
PRIMARY KEY,
transactionID INT Unique transaction ID
AUTO_INCREMENT
User who made the
userID INT FOREIGN KEY (User)
transaction
amount DECIMAL(10,2) NOT NULL Transaction amount
Date and time of
timestamp DATETIME NOT NULL
transaction
location VARCHAR(255) NOT NULL Location of transaction
Merchant where
merchant VARCHAR(255) NOT NULL
transaction occurred
ENUM('Approved',
DEFAULT 'Under
status 'Declined', 'Under Status of the transaction
Review'
Review')
3. FRAUDDETECTION TABLE

Column Name Data Type Constraints Description

PRIMARY KEY, Unique ID for fraud
fraudID INT
AUTO_INCREMENT detection entry
FOREIGN KEY Transaction being
transactionID INT
(Transaction) analyzed
riskScore FLOAT NOT NULL Fraud risk score (0-1)
ENUM('Fraudulent', Prediction result from
prediction NOT NULL
'Legitimate') model
ML model used for
modelUsed VARCHAR(100) NOT NULL
detection
Whether the transaction
flagged BOOLEAN DEFAULT FALSE
was flagged as fraud
4. ML_MODEL TABLE

Column Name Data Type Constraints Description

PRIMARY KEY, Unique ID for the ML
modelID INT
AUTO_INCREMENT model
Name of the machine
name VARCHAR(100) NOT NULL
learning model
Algorithm used (e.g.,
algorithm VARCHAR(100) NOT NULL
XGBoost, SVM)
accuracy FLOAT NOT NULL Model accuracy score
5. ALERT TABLE

Column Name Data Type Constraints Description

PRIMARY KEY,
alertID INT Unique ID for alert
AUTO_INCREMENT
FOREIGN KEY Fraud case that triggered
fraudID INT
(FraudDetection) alert
userID INT FOREIGN KEY (User) User being alerted
ENUM('Email', 'SMS',
alertType NOT NULL Mode of alert
'App Notification')
sentTime DATETIME NOT NULL Time the alert was sent
6. BANK TABLE

Column Name Data Type Constraints Description

PRIMARY KEY,
bankID INT Unique ID for the bank
AUTO_INCREMENT
bankName VARCHAR(255) NOT NULL Name of the bank
location VARCHAR(255) NOT NULL Bank's location
Whether the bank
fraudReportReceived BOOLEAN DEFAULT FALSE
received fraud report